Research On Judicial Intervention Into Self-regulation Of Stock Exchange

In the fierce beneficial conflict of stock market, stock exchanges in China havebeen pushed on the forefront of involving with appeals as performing theself-regulation duties. It could be remarkable progress from exclusion to beinginvolved with prudence by the courts, however, the confusion of hearing cases incourts and the underlying issues come out. The academic circle has not in-depththeoretical study and may not provide enough intellectual support for formingreasonable judicial intervention policies. On the basis of research on jurisprudentialissues on the self-regulation and judicial intervention, this article aims to explore thetypical issues of judicial intervention from civil judicial relief of self-regulation tort,the validity of self-regulation rules and judicial review, the discipline treatment ofjudicial review so as to provide the advice on how to perfect the relevant systems inand out of administration of justice on the basis of analyzing actuality and warrantlitigation cases.The first chapter is about theoretical basis of self-regulation of stock exchange,including two sections, focusing on the jurisprudential analysis on self-regulation andelaborating on the role of stock exchange. Self-regulation is widely used in social andeconomic fields and defines the basic connotations and denotations of judicialintervention by analyzing the self-regulation, market self-regulation andself-regulation of stock exchange. In the light of the relation of nation andself-regulated organization, self-regulation can be categorized into four basic models,i.e., government (statutory) model, limited exchange SRO model, strong exchangeSRO model and independent member SRO model. Self-regulation of stock exchange inherits from the business self-regulation and has profound foundation of institutionaltransition. Compared with the government supervision, self-regulation of stockexchange has the vital superiority of increasing efficiency, reducing cost andincreasing profit. Government and market are the basic institutional arrangements inthe allocation of resources. With the evaporation of the myth of the invisible hand andthe doubt on the effectiveness of the visible hand, self-regulated organizations couldserve as lubricant correcting the market and government failure. Stock exchanges areimportant part of self-regulated organizations. Stock exchanges in China are definedas legal persons of exercising self-regulation, but as the especial characteristic of therelation with the governmental supervision department, its judicial personality hasvanished.The second chapter is judicial intervention and self-regulation of stock exchange,including three sections, focusing on the legitimacy and limitation of judicialintervention, analyzing litigation risks of self-regulation. The concept of judicialintervention is relatively broad, including judicial interference, judicial supervision,judicial review, judicial remedy, and so on. Moreover, judicial intervention does notmean that the nature of passivity of jurisdiction would be broken. Justness, finalityand judgment are the basic characteristics of judicature, which establishes profoundfunctional base for self–regulation of stock exchange. As the existence of failurephenomenon such as interest conflicts, non-transparency and monopoly in stockexchange, judicial intervention is necessary. Problems that could be settled byjudicature are limited, and it also applies to judicial intervention into stock exchange’sself-regulation. Judicial philosophy issues of active or suppression has importanttheoretical reference value on establishing the limitation of judicial intervention. Weshould make proper balance in complicated value orientation which is based on thepremise that judicature must respect the self-regulation of stock exchange. Thediversity of self-regulation duty for stock exchange leads to susceptibility of litigationrisks. Because of stock exchange performing the duty of examining the application oflisting, approving listing and compulsory withdrawal, disputes arise among stockexchange, the listed companies and investors. Because of stock exchange performingthe duty of mamaging membership and disciplinary treatment, disputes arise amongstock exchange, members and other market participants. Because of legitimacy ofself-regulated rules, transaction information, abnormal transaction, disputes arisebetween stock exchange and other market partipants. The third chapter is about the common issues of judicial intervention into stockexchange’s self-regulation, including two sections, focusing on legal attribute of stockexchange, the basic infrastructure of self-regulated power. Stock exchange has dualcharacteristics, and there is in a dilemma when dividing standards of public legalperson and private legal person are applied. Stock exchange has the gene of privatelegal person and is mutual-benefit legal person in nature. Stock exchange has factorsof public legal person, the characteristic of public organizations simultaneously, all ofwhich are caused by the transition of economic functions of stock exchange, themodels predominated by the members and the privatization of administrative tasks.Even in US where is possessed of sophisticated securities law, the identification oflegal attribute of stock exchange by courts hesitated between private organizationsand public organizations. British courts reviewed the self-regulation organizations byestablishing the standard of function attribute. Judicial practice in China has obscurepoint of view and been in deep confusion. As stock exchange has the attribute ofpublic and private legal person, cases caused by self-regulation are probably civillitigation or administrative litigation. The standard of administrative subject could beadvised to abandon, and types of litigation can be defined in light of standard ofpublic function. Self-regulation power of stock exchange is mixture of power andright. Self-regulation, as a kind of right compared with national power, is the vitalrepresentation of independent person of stock exchange, and has two factors ofjustification and conduct, the basic characteristics of derivatives, collective and innate.There are two kinds of relationship in which power attribute of self-regulation ofstock exchange functions: one is the relationship between the self-regulated powerand national power, the other is the relationship of self-regulated power andmembership right. The power of self-regulated originates from rights granted by laws,contracts. The main contents are formulation power, punitive power, marketmanagement right and dispute settlement power and so on.The four chapter is about the civil judicial remedies of tort in self-regulation ofstock exchange, including five sections, elaborating the legal theories of liability fortorts, introducing the exemption system in self-regulation of American stock exchange,studying doctrine of liability fixation and the criterion of fault affirmation, theidentification of causal relationship and the shapes of responsibilities share in the jointact of tort. The liability of tort in self-regulation is the unfavorable consequence boreby the stock exchange in breach of obligation when performing the duty of self-regulation, aimed at renewing rights, combing the mandatory and optional rules,having the function of remedy and prevention. Constitutive requirements in theliability of tort in self-regulation include fault, fact of damages and the causalrelationship between them. The consequence of damages for tort in self-regulation isthe pure economic loss. Participants in stock market especially the investors couldprosecute to require damages by stock exchange. In US, implied private right ofaction is applied in the tort of self-regulation. At present, court in China would acceptthe cases in accordance with civil litigation procedure from the perspective ofpragmatism. Immunity from civil liability for self-regulation of stock exchange in USis based on the theory of sovereign immunity. The relevant cases represent thedeveloping progress that courts in US adopt the principle of immunity inself-regulated organizations. However, now they are piercing the veil of absoluteimmunity from civil liability, which has led the fierce disputes. In terms of thisinstitution of US, opinions of scholars in China vary and judicial practice refuses toadmit. We are unnecessary to introduce this institution as the important role of stockexchange is required to bear the burden of liability. Proper liability could promote toassign the resources more efficiently and restrict the self-interest of stock exchangemore effectively. Immunity from the civil liability is in breach of the principle of dueprocess. The doctrine of liability fixation of tort in self-regulation could be based onthe principle of fault liabilities and adopt the method of fault assumption to affirm thefault of stock exchange. Where defining the fault of tort in self-regulation of stockexchange, it is appropriate to adopt the doctrine of objective fault, which is inaccordance with the goal of protecting the financial consumers, can explain the faultof self-regulated legal person reasonably, and economize the judicial resources toensure trial efficiency. In terms of the different standards, fault in tort ofself-regulation can be divided into intention and negligence, action and inaction, all ofwhich would have significant influence on the liability of stock exchange. Especially,stock exchange should assume the liability for inaction. It is proper to adopt theobjective criterion for fault of tort including the legitimate standard and bonus paterfamilias standard. In the light of the causal relationship, there are the theory ofpositive causal relationship and relevant causal relationship in academic circle andpractice, but there are severe defects in the theory of positive casual relationships inthe predominant role. The dualism of causal relationship is advised to be drawn fromthe theories. Whether self-regulation is the reason for infringement should be examined from the perspective of facts, and whether such a casual relationship isproper should be examined from the legal perspective. In terms of the appointment ofliability involved with the joint infringement, stock exchange should assume the jointand several liabilities for joint act of tort and autonomy act of tort of casual relation.Where victim endangered losses as self-regulated targets are in breach of obligation, ifstock exchange has not performed the duty of self-regulation totally, it should assumethe relevant responsibility of compensation in the circumstances that damages wouldbe prevented or prohibited.The fifth chapter is about the legal effect for self-regulated rules of stockexchange and the judicial review system, including four sections, focusing on legalresearch on self-regulated rules of stock exchange, analysis on the effective basis forself-regulated rules, study on oversea litigation regarding self-regulated rules,discussion on judicial review for self-regulated rules. Self-regulated rules constitutethe legal source for stock exchange to perform its duty of self-regulation, protectingpublic interests as through its general binding force, which should be prevail inapplication. Compared with legal regulations, self-regulated rules have the advantagesof professionalism, low cost, flexibility, etc. as well as intrinsic values includingmaking up, transformation and symbiosis. Generally speaking, self-regulated rulesbelong to industry self-regulation system while manifesting the appearance ofadministrative regulatory documents, characters of commercial customs and nature ofthe contracts. Nowadays, the stock exchanges in our country have basically formed itsregulation system which could adapt to its self-regulation duties. The force ofself-regulated rules comes from its validity, reflecting the acknowledgement of thesecurities market participants to the self-regulated rules. The important prerequisitesfor self-regulated rules are purposiveness in content and justice in form. In theperspective of the substantial control of formulating self-regulated rules, the rulesshould follow the principles of non-conflict with superior law, fitting the developmentrequirements of capital market, ensuring the self-scientific and validity of the rules,maintaining harmony of internal regulation system, which includes listing rules,trading rules, membership management rules and etc. In the perspective of proceduralcontrol of formulating self-regulated rules, it is the internal need for realizing thelegalization of stock exchange’s self-regulation, enhancing the rationality ofself-regulated rules and ensuring the effective implementation of the self-regulatedrules to formulate rules through due process. Procedural democracy, procedural equality, procedural rationality and procedural efficiency are standards for proceduraljustice which must be complied with. However, the application of the standards islimited compared with legislation. The systems of proposing, forming and cominginto force by legislation constitute the basic links of complying with due process.Establishing procedure of self-regulated rules established by foreign stock exchangehas given us important enlightenment. Self-regulated rules are binding on marketparticipants, and are conducive for the stock exchange to fulfill the duty to regulateitself, to maintain the transaction safety and order in the securities market, to promotethe innovation and development in the securities market in a better way. The provisionof self-regulated rules and the terms of the contract are the practical way of theself-regulated rules to constrain markets participants. In addition, self-regulated rulesare the important basis for the securities market regulatory authorities to exercise theirfunctions and powers, and to judge the legitimacy of the market behavior. With thenature of legitimacy, adaptability and validity, self-regulated rules can be regarded asthe basis for the court to make argument in judgment documents, but not the basis tomake trial. Self-regulated rules involve in suit from time to time in foreign countries,judicial point of view reflected in typical cases in US, Taiwan Region, Hong KongSpecial Administrative Region has given us positive enlightenment. Judicial review ofthe self-regulated rules is needed to restrict self-regulated power of stock exchange, tosafeguard the legitimate rights and interests of the market participants, and regulatethe innovation and development of securities market. Moreover, the facts that theadvanced experience of foreign countries being adopted, the ecological environmentof securities market being gradually improved, coming to realty being little difficult,actually already being existed, determine the feasibility of judicial review of theself-regulated rules. It is appropriate for the court to adopt designated jurisdiction insuch cases. The method of incidental review shall be used and the basic principle thatlegitimacy review dominates shall be followed. In reviewing the legal and factualissues, standards such as significance review, supportability review, strong contentreview shall be used according to actual situation. In reviewing the procedural issues,it is appropriate for the court to adopt the due process standard or “minimal level ofjustice” requirements. Considering the effect of the judicial review, it is moreappropriate not to use the self-regulated rules in specific cases.The sixth chapter is about the judicial review of discipline treatment of stockexchange, including five sections, focusing on the jurisprudential issues and the restrictive mechanism of discipline treatment, comparing the institutions of disciplinetreatment of stock exchange beyond seas, and then probing into the justiciability, theprinciple of exhaustion of priority remedies and the intension of judicial review. Theassociations’ punishment is typical of self-regulated organization saction, differentfrom the administrative penalty and punishment. The discipline treatment of stockexchange is associations’ punishment, including the main body, the objects, the gist,the methods and so on. Its nature is discipline punishment. Setting the concreteboundary and justifying the exercise of power is important restriction to the disciplinetreament power of stock exchange. In terms of setting the concrete boundary, it isproper to apply the principle of law reservation. The restriction of due processcomprises treating the litigants fairly, hearing their statement and defense andelaborating the reasons. In the sophisticated securities market overseas, the system ofdiscipline treatment is rather complete as vital part of self-regulation of stockexchange. It processes reference meaning that the discipline treatments of New Yorkstock exchange, London stock exchange, Tokyo stock exchange and Hong Kong stockexchange is to perfect relevant system in our country when it comes to theindependent operation mechanism, the combination of prorogation and simplicity ofthe procedure, the formality of investigation process, the hearing model and theperfection of relief measures. As the hurdle of value, opinions and institutions such asautonomy and heteronomy, privileges and rule of law, demand and law, justiciabilityof discipline treatment in stock exchange is challenged. However, justiciability playspositive role in settling the dispute of autonomy, reliefing right of counterpart,safeguarding the self-regulation of stock exchange. In practice, the justiciability inwhich the administrative relationship can define the discipline treatment, would makejudicature a proper and necessary remedy way when adopting the public function ofaccepting cases by court. It would be helpful for respecting the self-regulation ofstock exchange and safeguarding the legitimate interest of counterpart if rulesrationally arrange the timing of disciplinary treatment of stock exchange by judicialreview. There are administrative remedies concerned in the field of stock supervision,such as UK Administration Judicatory System and the system of administrative appealsystem in US. The principle of exhausting administrative remedies is very importantsystem in administrative litigations which applies in self-regulation of stock exchangeincluding the exhausting internal remedies and administrative reconsideration. It hasimportant value to resolve the dispute of discipline treatment, make harmony in self-regulated organizations and improve the quality and efficiency of the judicialreview. When it comes to set the relevant procedure, it would proper to combine thereexamination and reconsideration. The intension of the judicial review is of theessence. In the stringency of reviewing the facts of cases, opinions held by thecontinental law system vary with that by the common law system. Judicial review byour courts would be advised to adopt the flexibility of substantial evidence standardwhich would promote self-regulation to operate in the orbit of the rule of law onpremise that courts do not abandon reviewing facts. In the stringency of reviewing theprocess of disciplinary treatment, it may be proper to adopt the minimal level ofstandard of due process. As stock exchange is self-regulated organization, applyingthe principle of due process is limited and necessary for respecting the rule of law,differiateing the nature of procedure and considering the efficiency of self-regulation.The typical cases of US adequately incarnate that courts respect self-regulation ofstock exchange, and stress the specific circumstances in which self-regulation abideby due process. According to “minimal level of procedural justice” requirements,standards of judgment are confirmed. These standards involve treating the litigantsfairly, function confusion, procuration by the lawyer, hearing procedure andelaborating the reasons.The seventh chapter is about the reality and system perfection of China’s judicialintervention into self-regulation of stock exchange, including four sections, focusingon anatomising the reality of judicial intervention in China, analyzing typical cases ofwarrants disputes, and providing advice on how to perfect relevant systems in and outof judicature. There exist difficulty issues for judicial intervention into self-regulationof stock exchange, which include conflicts between real demand and system supply,self-regulation and external intervention, transformation factor and nomocracystandard. Based on27warrants cases to be accepted by the court, the number ofannual lawsuits, the situation of the parties, the amount of the subject involved, thetypes of case, the disposition of case, appeal instance, warrants involved, the cause ofaction and other aspects of these lawsuits are analyzed by judicial statistics.Meanwhile, six types of typical cases are analyzed, involving warrant creation,warrant information disclosure, exercise of warrant, validity of warrant rules,announcement content of warrant, restriction of warrant transaction. Overall,reasonable positioning of China’s judicial intervention into self-regulation of stockexchange may get things done and be cautious. Justice has functions of responding to the demand of society, finally resolving disputes and providing rule guide, which canmake it enter reasonable judgment on disputes. However, definite institutionalarrangements must be made for limited judicial intervention, including determiningappropriate scope of case accepted, fully considering characteristic of industries,setting necessary preconditions, focusing on reviewing procedural legitimacy andcarefully determining liability, etc. In specific steps, individual case should be first,specially attention should be paid to the demonstration effect and guidance function ofcase, and perfect relevant laws and regulations as soon as possible. Besides, judicaturemodulating self-regulation of stock exchange is just means rather than purpose, thereal strength of improving self-regulation of stock exchange comes from out ofjudicature. These measures mainly aim at improving internal operating mechanism ofself-regulated power and improving external environment of self-regulated power.